Wednesday, July 13, 2011

Holder Wants Banks to Stop Discriminating

It seems they discriminate against borrowers with bad credit, which Eric Holder sees as massive civil rights violations. This kind of thinking was instrumental in Fannie Mae's influential MyCommunity Mortgage program and accompanying software that gave the Federal imprimatur to ninja loans. How could any regulator criticize loans its own agency was encouraging at Fannie Mae? How could any investor doubt loan criteria vetted by the historically low-risk Fannie Mae? They didn't. It didn't cause the crisis, but it was a leading cause.

Last month, the Supreme Court ruled that the Wal-Mart class action suit had to be refocused, but the opposing side said mere statistical disparity and anecdotes were sufficient and they only lost 5-4. If statistical disparities and anecdotes are proof of malfeasance it's hard to see any large organization not in violation. A Department of Justice spokesperson named 'Xochitl' (demi-god spawn of Chthulu?) explained they are trying to make sure banks behave in methods that are sure to create a vast array of convoluted regulations, because it would be suicide for banks to not discriminate on the basis of creditworthiness, and impossible for this to not have disparate impact on historically disadvantaged minorities. From the IBD:

As part of settlement deals, prosecutors have required banks to sign "nondisclosure agreements" barring them from talking about the methods used to allege discrimination. Bank lawyers contend the prosecutors are trying to hide the shaky legal grounds on which the cases are built. "It's horrible what they're doing at the civil rights division," said Reginald Brown, a partner at Wilmer Hale in Washington, who has represented banks in connection to recent race-bias investigations. "They don't have any proof, just theories."

He added, "They want you to sign something saying you agree, under the condition of any settlement with them, that you won't disclose what their theories were. That's because their theories are loopy and wouldn't stand the light of day."

One such theory — "disparate impact" — holds that merely a difference in loan application outcomes is enough to prove racial discrimination — even if no intent exists on the part of loan officers to contrast based on the color of applicants, and even legitimate business factors — such as credit scores and down payments — help explain disparities in loan outcomes between white and black applicants.

And just in case you think I'm being paranoid about the race card being thrown around, consider this choice quote:

In announcing a recent $2 million settlement with Dallas-based PrimeLending, Civil Rights Division chief Tom Perez said, "We will require lenders to invest in the community that they've harmed."

Another Reno protege, Perez has compared bankers to Klansmen. Only difference is, he said, bankers discriminate "with a smile" and "fine print." He said this kind of racism, though more subtle, is "every bit as destructive as the cross burned in a neighborhood."

Like naming your kid Moonbeam, you are making a political statement with such a flagrantly unpronounceable name (assuming you were born in America, which I think she was, coming from a powerful judge father). She deserves the joke, as she has chosen to become part of the racial spoils industry, which I find pathetic.

Most bubbles over correct to the downside after bursting. After WW2, people were disillusioned with the bad outcomes of eugenics research and over corrected to think all people are equal in the literal sense, in that there are NO measurable differences between groups of people, such that random Ashkenazim male Jewish kids have the same odds of becoming successful theoretical physicists when they grow up as black females if they try equally hard... that's just being blind to empirical evidence.

Guys, I don't get most of your intense discussion around racism and I am very happy I don't. A free economy and a small government would do great overall, however it would incidentally leave a lot of people starving. It's a fact. Maybe you need to include it somewhere in your discussion of government spending.

@Joe Sixpack - the ad hominem in this instance would a joke which likens a common Hispanic name to a minion of a fictional, evil Elder God. The aside "attack[s] an opponent's character rather than answering [their] argument".

I am merely pointing out that what Eric said is an unacceptable statement unrelated to any point about the size government that he would liked to have made. Making such a "joke" only undermines his position because it links his reasonable and defensible position on government regulation with an unreasonable and indefensible statement which draws an equivalence between a Hispanic name and an evil entity.

@ Eric - Please note that I am concentrating only on "what you said which was racist" rather than trying to guess your motives and intentions, which are unknowable to me. In the same way, you are unable to divine the motives and intentions of Xochitl or her parents for choosing her name, whether it be a "political statement", a desire to become part of the "racial spoils industry", or some other motivation. The fact remains that what you said utilizes the "humor" of linking a broad ethnic category to a negative entity, which is, as an action and statement, racist and unacceptable.

I am unable to make sense of when someone "deserves" a joke versus not, but I will say that regardless, the joke was not funny. You could try another line of humor more conducive to your broader rhetorical aim, such as follows:

"A Department of Justice spokesperson named Xochitl Hinojosa explained they are trying to make sure banks behave in methods that are sure to create a vast array of convoluted regulations, promising the banks a fresh peach pie for every additional 100 pages of underwriting guidelines."

I think you are reading way to much into the Chtulu reference, which is a common joke over at Fark, as something scary in a campy way (look up 'campy'). As a kid others would often call me 'Frankenstein' (my surname: Falkenstein), and it never bothered me, so I don't empathize with the hurt feelings very well.

So what you are saying is that you want the level of discourse on your blog to be at the level of Fark or a kindergarten playground? Is that the level of thought and intellect that you want people to think you put into your other posts?

I expect stupid, unfunny, racist jokes from Fark. Stupid, unfunny, racist jokes undermine whatever point it was you hoped to make.

Humor is very subjective, and without intonation and context, often misinterpreted. If you think I'm not funny rather just mean, it's not intended. I'm not going to change, however, because I'm my own boss on this blog, and I do it to amuse and educate myself (posting often clarifies my thoughts, and commenters do make good points).

I think the Fark commenters are overwhelmingly liberal types who think the rich are bastards and disadvantaged minorities are routinely treated unfairly by society, hardly racist, but I still find the site very funny.

While humor is indeed subjective, do you see how implying a common ethnic name was a minion to an evil (fictional) god would undermine and distract from your point that the Justice Department sees bank lending practices as inherently race based?

Can you see how denigrating the standing and authority of a minority via an ad hominem based on their name on the one hand while complaining about the verbiage used by Tom Perez on the other is inherently contradictory? That by engaging in the former you cede your ability to critique the latter?

If you want people to take your posts seriously, avoiding making "jokes" that depend on ethic heritage would be good first step. You are, of course, welcome to not change your behavior. However, as a reader who has enjoyed your other areas of specialization, I dislike and disapprove of this action, as it undermines your credibility in general.

Well, I'm rather stupefied by your interpretation that I was conflating a common ethnic name as being evil, because it's hardly common (not listed in the top 1000 in any year this century for the US where she was born), and Chthulu is not like Hitler but rather Skeletor, the He-Man comic book farcical arch-nemesis. Xochitl is also unpronounceable w/o googling and appears raised to be part of the farcical modern grievance industry. Unexpected symmetries are funny. QED.

Much of this started with the Boston Fed's infamous 1992 "study" of redlining, which James Johnson used to Fannie's advantage by collaborating with ACORN and all the other usual suspects. Gretchen Morgenson provides all the details in "Reckless Endangerment."

jut because there are idiots on one side of an argument doesn't mean there can't be good arguments on that side, and doesn't mean there aren't idiots on the other side too.

Banks did a very good job of lending money to frauds, conmen, and reckless individuals, often because they spoke the same kind of language and had the same backgrounds.

Access to credit at reasonable terms is a big issue for disadvantaged people across the world. Lack of credit keeps them disadvantaged and perpetuates cycles of poverty. There are reasonable efforts in some places to enable lending to poor and disadvantages with reduced risk and lower rates. And there are also politicians who make a big noise to try and get elected.

When the housing industry was unregulated, borrowers and lenders sorted out the good, bad, ugly, honest and fraudulent for themselves. The only parties affected by the deal were the tranacting parties. Those markets are long gone, but in the early 1990's the federal government started imposing a broad range of unprecedented externalies upon the rest of us by effectively prohibiting lenders from considering much of the risk cost of otherwise unqualified applicants. In Coasian terms, those policies were roughly analogous to judicial rules prohibiting farmers from assessing the risk cost of crop damage caused by passing trains whose sparks might set their fields on fire. Yes, the government's policies "enhanced access" to credit for the "disadvantaged," but those policies also imposed several hundred Exxon Valdez's of externalities upon lenders, other portions of the housing industry, taxpayers, and much of the rest of society. I do not believe that the benefit of the "[bad] ideas" underlying these policies were worth their "burden."

the federal government started imposing a broad range of unprecedented externalies upon the rest of us by effectively prohibiting lenders from considering much of the risk cost of otherwise unqualified applicants.

This story of course fails to explain why lenders became less stringent instead of more stringent; it fails to explain why financial institutions failed (government intervention in the housing markets was public knowledge); it fails to explain why the failure of financial institutions triggered a long-lasting recession and large increases in unemployment around the world. It does valiantly defend a simplistic ideology though.

Unfortunately, our economic system runs on credit. The other unfortunate part is that there are those falling into credit problems because of layoffs and etc. Banks need to have the ability to offer some kind of loan to help those regain their credit standing, even if it means a little bit of government intervention.

Silly me. I was under the impression that something other than conventional market incentives guided Fannie and Freddie - with their more than $3 trillion of affordable-housing-laden mortgages, implicit government guarantees, armies of lobbyists, and the guidance of such consummate insiders as Jim Johnson and Franklin Raines. In my naivete, I also concluded that twenty years of federal bailouts (Continental Illinois, LTCM, Mexico, Greenspan puts, etc., etc.) signalled creditors -- the guardians of downside risk in most finanical markets -- that well-connected firms were too big to fail and could therefore hyper-leverage with impunity. Because lenders to Bear Stearns and AIG were subsequently made whole, I mistakenly assumed that this pattern of government intervention had distorted their incentives. Fortunately, the Obama administration continues to promote affordable housing and Dodd-Frank will ensure that financial markets will function flawlessly forever and ever.

Ah, the allure of socialism. What was Einstein's definition of insanity?

lb100, I'm not sure why you think I'm advocating socialism. Oh wait, I know why, it's because I don't subscribe to an ideology that assumes that the *only* the government can provide individuals with the wrong incentives. That makes me a big follower of Lenin and Mao, and easy to argue against to boot.

In your story only the taxpayers paid for the financial crisis (through government bailouts). I didn't realize that AIG shareholders or Bear Stearns shareholders or Lehman shareholders (and bondholders) walked away with "impunity."

I suppose you must have seen the financial crisis coming from a mile away, huh? It was oh so obvious. Everyone should have seen it coming. Certainly anyone with large amounts of money invested in the financial sector. I'm pretty sure no investors lost money once bailouts were factored in.

Oh, and if there had been no government bailouts of too-big-to-fail firms, then everything would have been hunky-dory, because leverage would have naturally been limited by wise prudential investors who knew that there would be no bailout. There is absolutely no sense in which excessive interconnectedness in the economy is some sort of emergent property that isn't within the responsibility or control of any person or firm. No, it's something the market would just naturally work out if we didn't have socialism.

Socialism, the cause of every single problem in the world. No ideological bias, just basic common sense.

For your information, some people, who operate what are called "hedge funds," did see the crisis coming and they are now very rich. They did not have to resort to obscure financial models, just a bit of detective work, to see what kinds of loans Raines, Johnson, et al were packaging and the dangers they posed. Take a look at "Panic," written by Andrew Redleaf, who made a billion or two for his fund. You might learn something about the difference between equity holders (who did lose) and creditors (who, as I indicated, were bailed out).

And, yes, let's strangle the financial industry like good little Lilluputians to eliminate entrepreneurs and ensure everybody acts like HUD bureaucrats, continue to share credit risk, make "affordable housing" to all comers, and call ourselves something other than "socialists."

This is like talking to a brick wall. Financial institutions accumulated massive exposure to the US housing market. When you say that the housing market was bound to fail because of government interference, you are actually saying that these financial institutions were too stupid to see the most obvious thing in the world -- after all, the US government's actions are very much *public* information.

Wait, maybe there's an escape hatch, you can say that the only reason this exposure was built up was because of everyone knew they would get bailed out. Of course one problem with this is that not everyone was bailed out. Moreover, only a simple-minded ideologue would think that moral hazard is the *only* issue at play here, and that if you removed the moral hazard then magically all the interconnectedness in the economy would disappear.

But hey, if it feels good to be a simple-minded ideologue, then maybe no one wants to be right.

I suspect you have little experience with challenges to your views of the world. You consistently ignore, run away from, and grossly mischaracterize what I say. You might find these exchanges more productive if you put your own views on the line a bit, while addressing what others have actually said.

Yeah I can see you're really bothered by mischaracterization... I mean, I haven't advocated for any policies in my comments here, yet you've direct the following to me:

let's strangle the financial industry like good little Lilluputians to eliminate entrepreneurs and ensure everybody acts like HUD bureaucrats, continue to share credit risk, make "affordable housing" to all comers, and call ourselves something other than "socialists."

Ah, the allure of socialism. What was Einstein's definition of insanity?